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A cross-party committee of MPs has urged the government to reject a £10bn takeover proposal from Thames Water's creditors.

The UK's biggest water company owes roughly £20bn and has been working with creditors and government officials.

A report by the Environment, Food and Rural Affairs (EFRA) Committee has now said the government should consider placing it into special administration, a form of temporary nationalisation.

A Thames Water spokesperson said it needed to be "recapitalised and put on a firm financial footing".

Fears that the firm, which serves 16 million customers, could collapse first emerged three years ago.

The committee said a takeover plan by a consortium of more than 100 of its creditors did not have "the interests of the public, the company or the environment at heart".

The plan was seen as the final realistic option to avoid a special administration regime, after a previous deal with a US private equity giant collapsed.

Creditors, who collectively own about £17bn of Thames Water's debt, were previously warned by former environment secretary Emma Reynolds their plan did not go far enough to protect customers or the environment.

The new report said Thames Water, alongside other "poor-performing" water companies, was in a "doom loop" of fines for poor performance leaving it with less money to invest in improvements.

'Chaos'

It warned the company would "likely accrue" more than £900m in penalties over the next five years.

The committee said laws needed to change to allow the government to trigger a special administration on performance grounds alone.

It also warned the top priority for the bidders, called London & Valley Water, was to "extract immediate value from Thames Water, not steer it to long-term success".

Alistair Carmichael, chairman of the committee, said: "We believe Thames Water can be turned around, but not by giving the keys back to the people who have been joy riding in the family car.

"The government should reject offers from the company's creditors in return for relief from fines for pollution and poor service."

Carmichael said "liabilities that the government will face in the short-term" could be recouped by a future sale of Thames Water once its finances and performance are back on track.

He added: "The chaos of another Thames Water-style saga must not be repeated."

A spokesman for London & Valley Water said: "This group of investors has never been in control of the company and has never received a dividend from Thames Water.

"They have stepped in to fund a significant revenue shortfall to ensure Thames Water's record capital investment programme can continue without disruption."

He added: "Our enhanced proposal will address all feedback from Ofwat and ministers and is the fastest route to fix Thames Water's complex problems."

A Thames Water spokesperson said: "Turning Thames Water around will take a decade and require significant and sustained investment, but we are already making progress and this is a different business from the one it was two years ago."

They added: "Anything that delays the recapitalisation risks slowing the turnaround, disrupting investment and increasing the cost of delivering the improvements our customers and the environment need."

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